Morningstar - Q2 2023 - 23

Australian Investors
Left in the Dark
What do the collapse of Silicon Valley Bank, the
wipeout of Credit Suisse's CS hybrids, and
the Russia-Ukraine war all have in common?
Answer: Australian investors are largely in the dark
about their exposure to these global events.
Why? Because Australia has the weakest
portfolio disclosure laws in the developed world.
Investment managers aren't legally required
to disclose what's in their portfolios to the public,
or to their investors. And while superannuation
funds have some disclosure obligations, the
bar is very low.
This issue isn't new: Morningstar has called for
better disclosure requirements for years.
Current rules-which came into effect last
year-do force superannuation funds to disclose
the identity, value, and weighting of the
listed securities they hold every six months. But
outside of stocks, things become murkier.
" On the fixed-income side, there's no obligation
to disclose the individual holdings, just the asset
manager managing the money, " explains
Morningstar Australia's director of manager
research, Grant Kennaway. For example, " if you're
in an Australian super fund, and they use a
third-party manager like Pimco, they'll name Pimco,
but you've got no idea what Pimco is investing in. "
And that matters to investors. Take the recent
wipeout of the value of Credit Suisse hybrids
as an example: " You're never going to know if your
fund had exposure to Credit Suisse hybrids
because it's not disclosed, you're just relying on
the good graces of your super fund to tell
you, " Kennaway says. " But they wouldn't tell you. "
Disclosure obligations are even weaker for
private assets. At the security level, super funds
aren't required to disclose their unlisted
assets. It's the same for unlisted property and
infrastructure. Recently, however, the issues
surrounding transparency have been thrown back
TRENDS
Carbon Dioxide as a Source of Value
Venture capital investment into carbon
utilization has increased dramatically in the last
few years, driven by regulatory and policy
incentives, technological advancement,
and increasing installation of carbon capture
hardware. Carbon utilization provides an
alternative to carbon storage.
Captured carbon can be used as a feedstock to
create a broad range of products, including
chemicals, fuels, and construction materials, in
addition to varied lower-volume applications.
Each of these approaches has different
requirements, challenges, and decarbonization
potential. Ultimately, the viability of carbon
utilization approaches will vary depending on
factors like energy costs, regulation and
policy, consumer and corporate interest in
low-carbon products, and the cost of carbon
transport and storage.
VC investment jumped from $116.2 million in
2020 to $476.5 million in 2021 and $699.1 million
in 2022. The five largest carbon utilization
deals in the last five years were to:
gMonolith, which converts natural gas to hydrogen
and solid carbon, which is used for industrial
applications. Monolith raised $534 million over
three late-stage VC deals, the largest of which
was its $300 million Series D in July 2022.
gTwelve, which converts CO2
fuels, using CO2
to chemicals and
from either point sources
or captured directly from the air. Twelve raised
$130 million in Series B funding in July 2022.
gPrometheus, a CO2-to-fuels company that
also develops the direct-air-capture technology
to supply CO2
to carbon utilization hardware.
Prometheus raised $100 million in Series B
funding in September 2021.
In general, the carbon utilization industry
contains a wide range of approaches, and
companies often offer related services. Carbon
capture is the most common-allowing
companies to generate their own CO2
inputs
without external providers or allowing
them to offer hardware to handle the entire
carbon capture-to-product process.
John MacDonagh is a senior analyst, emerging
technology, at PitchBook, a subsidiary of Morningstar.
Global VC Investment in Carbon Utilization
$800M
699.1
600
476.5
400
200
148.1
2018
Source: PitchBook.
85.5
2019
116.2
2020
2021
2022
23
Quality of Financial Advice and Services
32
https://www.morningstar.com/stocks/xnys/cs/quote
Morningstar - Q2 2023

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